However, the new regulations would redefine “disreputable conduct” to include the charging of contingent fees for the preparation of original or amended returns or refund claims. It would also include “unconscionable” fees, which may encourage evasion or abuse of federal tax laws by incentivizing aggressive tax positions that increase the client’s reported tax benefits for the personal gain of the practitioner.
While the IRS had previously proposed similar rules in 2009, these proposals were never finalized. Furthermore, a 2014 federal court decision in Washington, D.C., ruled that the IRS could not prevent tax professionals from charging contingent fees for ordinary refund claims based on the IRS’ power to regulate practice before the agency.
Unlike the previous rule proposals, the regulations released on Friday do not rely on the preparation of returns or refund claims as constituting practice before the IRS. This change reflects an expansion of the authority of the IRS to regulate tax practitioners in this area.
